Ignoring Your Corporate Identity Can Sabotage Strategic Change

Corporations struggling to make strategic or operational change need to consider whether their company’s own sense of itself is getting in the way, according to Wharton researchers who have been studying corporate identity for more than a decade.

Identity is a crucial component of all firms, but it often goes ignored until a crisis forces a company to confront change, suggests Wharton management professor John R. Kimberly, who along with colleague Hamid Bouchikhi, a professor at ESSEC Business School in France and a senior fellow at Wharton, has studied the identity issue in a number of companies, both in the U.S. and abroad.

Successful change at Nissan and Danone Group, for example, and creation ofthe pharmaceutical company Aventis, took identity into account, they argue. Meanwhile, managers at Vivendi and Hewlett-Packard ran into trouble when they failed to give identity its due. Ford Motor Co. is wrestling with the issue now.

To be ready for change at any time, managers must be more aware of how key stakeholders, such as employees, customers, investors and the community, view the company’s identity, the researchers say. Change, when necessary, should then be structured so that it does not run counter to this perceived view. If such an approach is not possible, managers should consider ways to alter the firm’s identity to match the strategic plan.

Defining corporate identity is often difficult, and the clues to what factors shape identity vary widely among industries and firms. According to Kimberly, identity goes deeper than corporate culture. “You hear senior managers say, ‘You have got to change the culture.’ That’s almost a throwaway line. When you hear people say that, they are missing the deeper issue of identity.”

Bouchikhi compares identity to an envelope. “Within that envelope you can do a lot of strategic change. Identity starts being a problem only when the envelope becomes constrained and the range of strategic options is [limited] … It is then that no progress can be made unless you change the envelope.”

Identity, he says, is the answer to the question, “Who are we?”

Ford’s New Old Logo

Consider Ford Motor Company. According to Kimberly, Ford’s decision to go back to its traditional blue and white logo reflects a desire to return to its roots as a 100-year-old manufacturer, following a tumultuous period of change led by former chief executive Jacques Nasser. “It’s a symbolic gesture which to me is a reaffirmation of the fundamental idea of the company as a builder of automobiles. Nasser had a vision of creating a service company which also included a whole range of products and services.”

Nasser’s goal of elevating the company from a manufacturer to a competitive marketer of high-margin products and services may have been correct, but the pace of change clashed with Ford’s core understanding of itself, Kimberly says.

Yet simply returning to the old logo and reaffirming Ford’s identity may not be enough to remain competitive. According to Kimberly, “They also have to say, ‘This is what we know how to do. So let’s do it better. Let’s do it faster, and more efficiently, and we will reestablish our leadership position in the industry.’”

The authors suggest there are two ways to alter identity that is blocking necessary change, either through an evolutionary process or with a revolution. If there is time, the slower, evolutionary way tends to work best.

Danone Group, the French food and beverage company, evolved out of a glass manufacturing firm over two decades of change through gradual acquisitions. “At Danone they have been enormously successful by going little by little, a few steps at a time, which [allows] people within the company and on the outside to have a sense of where” the company is headed, says Kimberly.

The family business was transformed by Antoine Riboud, who started as a mustard salesman and was still young when he was handed control of the firm. He was not personally invested in the identity of the firm as a glassmaker, according to Bouchikhi. “Having a fresh perspective certainly allowed him to de-emphasize the glass part and to increase the food and beverage part to the point where the company was no longer a glassmaker. In a lot of instances, outsiders can afford to look for sacred cows in organizations.”

Nissan Motor Co. was in dire shape when it turned to Renault for help. Management of the French automaker insisted on strategic change, but allowed Nissan to maintain its internal identity as a Japanese firm. “The Japanese were prepared for some radical stuff; they had seen that everything else had failed,” Bouchikhi points out, adding that from the start, Renault executives announced they were only after strategic change. “They said there was no problem with Nissan being a Japanese carmaker. They didn’t have to cope with the identity question.”

Still more radical upheaval occurred at Vivendi Universal, the French water utility that was transformed practically overnight into a media conglomerate by its former chief executive Jean-Marie Messier. “Messier tried to change virtually everything all at once and got in deep trouble,” says Kimberly. “The vision itself wasn’t necessarily bad. It is the way he went about it that caused the trouble.”

Messier’s plans conflicted so much with the company’s identity, both inside and out, that strong opposition rose up almost immediately, costing Messier his job.

Identity Audit

Opposition to change in a firm’s identity is inevitable, the authors note in an article on corporate identity published in the spring issue of the MIT Sloan Management Review, because someone is bound to lose in the process. Management’s task is to identify potential opposition and find ways to defuse it.

The authors suggest that Carly Fiorina misjudged the reaction of influential members of the Hewlett and Packard families to the firm’s merger with Compaq. “She clearly underestimated how deeply rooted HP’s identity was in the personalities and values of its co-founders and, therefore, did not anticipate the amount of resistance she encountered,” they write in the Sloan article.

A successful case of radical transformation is that of Aventis, the global drug company created out of the 1999 merger of France’s Rhone-Poulenc and Germany’s Hoechst. Mindful of difficulties that arose in many other global mergers, executives carefully crafted a new identity for Aventis – including a name made up from scratch – to underpin the operational consolidation that would take place in combining the two firms.

“The merger operated at the identity level from the outset. A lot of pharmaceutical mergers that you see are not as far-reaching in terms of identity as Aventis was,” says Bouchikhi. “Sometimes these mergers are problematic because they try to do it merely on the strategic and operational strategies while they still have two divergent identities.”

Bouchikhi suggests that enacting a revolutionary change of identity is risky. “Before doing it, management and financial analysts should think twice. You know what you are changing from, but you don’t know the destination and it may well be that you go nowhere.”

Bouchikhi and Kimberly have devised an “Identity Audit” which is a series of questions managers should be asking continuously to determine whether the firm’s identity is in keeping with its strategy.

Some of those questions are: What is our identity? Is there internal convergence on our perception of, and commitment to, our identity? Are the internal and external perceptions of our identity consistent? Who would be threatened and who would be served by a change in our identity?

“Usually corporate health deteriorates slowly over years, sometime decades,” says Bouchikhi. “If you are a wise manager, you would have done this auditing on an ongoing basis to … make sure you will never be stuck in a … dysfunctional identity.”